GCC equity markets ‘to maintain upward trend’

MANAMA: GCC equity markets are likely to remain on an upward trajectory in the second half, building momentum on the strong rally witnessed during the first half, according to a leading investment adviser.

“The broad macro environment for the year remains encouraging as the end of fiscal cliff in the US and quantitative easing in emerging markets as well Europe would provide much-needed impetus,” Alpen Asset Advisors managing director Sudarshan Malpani told the GDN. The company is an associate of Alpen Capital, an investment bank.

“Second quarter earnings should continue to meet or beat analyst expectations in general and increase interest of foreign investors,” he said.

“Regional governments’ commitment toward building the non-oil sector through continuous investment in developing the infrastructure sector and expansionary budget policies would be key region-specific triggers for sustained improvement in economic performance,” he added.

Dubai-based Mr Malpani said as the GCC economies were poised for growth, the focus remained on select sectors which had immense growth potential.

“These include retail, banking, real estate and construction, transport and logistics and telecommunication,” he said.

“The retail sector is set to grow in view of favourable demographics supported by rising disposable incomes and increased demand from tourism.

“Demand for affordable housing fuelled by encouraging lending rates and favourable policy environment have contributed to the boom of the real estate sector,” he added.

“With the real estate boom and growing private consumption improving private sector lending, the banking sector is all set to be on a growth trajectory,” he said.

“The expansionary government policy is fuelling funding needs, especially in non-hydrocarbon sectors,” he added.

Sounding a cautionary note, he said the overall GCC market, however, remains exposed to spells of volatility that could arise from lack of institutional participation, high-dependence on oil, and any impediment to global economic revival.

On plans to have unified share market listings in the GCC region, Mr Malpani said it would create several benefits such as a one-time registration process, enabling international clients to access all GCC markets without individual market registrations and custody arrangements.

“The market will become broader and will address the current concern of lack of depth and choice for the investors to an extent by offering them the most liquid stocks across markets at one access point,” he said.

“The initial public offering (IPO) markets will also get a boost,” he added.

“An IPO from one country will be available across GCC and to international investors at the same time, creating a much larger market for the companies to raise funds.

“A unified market would also mean that the regulators would have got to a common ground in terms of capital market laws and regulations, thereby making it easier for exchanges, issuers and international investors to understand and follow the market rules without having to go into specifics of individual markets.

“Another change that could come about together with unified exchanges could be a book building approach for price discovery for IPOs and a lower minimum offering size as a percentage of capital,” he said.

“These rules will ensure a bigger number of companies opting for the IPO route, creating broader markets,” he added.

By AVINASH SAXENA, July 24, 2013